Trust Basics 101: What is a Sweetheart Trust?

If you thought there was nothing romantic about estate planning, you’ve never heard of a sweetheart trust. Okay, well, it may sound more romantic than it is, but this type of trust can be a wise option for you and your spouse.

What is a sweetheart trust?

Called a “sweetheart” trust because it gives control and discretion to a surviving spouse after the other spouse’s death, a sweetheart trust can be modified or revoked if both parties (spouses) are alive and competent. Upon the death of one of the spouses, the trust remains revocable and in the control of the surviving spouse. That said, the surviving spouse is free to what he or she will with the assets within the trust – or with the trust itself. That means he or she can add or remove beneficiaries, add or remove assets, etc.

If you’re new to Las Vegas estate planning, a sweetheart trust is often a popular option because it’s very straightforward and simple. That said, a sweetheart trust can still successfully help you avoid probate, which is an attractive concept for most estate planners.

The sweetheart trust has become a more popular option in estate planning recently, as the unified credit amount – which is the amount of tax-free assets that can be passed on – is now over $5 million. Additionally, “portability” now enables surviving spouses to use the unused unified credit of the deceased spouse, essentially allowing him or her to pass on $10 million without paying estate tax.

That said, there are a number of reasons a sweetheart trust might not be the best option for your specific situation. For example, if you’re part of a blended family, your natural heirs may find issue with the fact that your spouse has the ability to change the terms of the trust after your death. And, if the assets within the trust appreciate, you run the possibility of exceeding the estate-tax free limit, wherein another trust structure might be more financially advantageous.

If you’ve got questions about a sweetheart trust – or any other type of trust – call us today.

About Michael R. Cahill

Mr. Cahill has spent his professional career dedicated to assisting clients with planning their estates, protecting their assets from creditors, and creating business entities to operate companies or manage investments.